To Comply or Not to Comply: Understanding Neutral Country Supply Chain Responses to Russian Sanctions

Using transaction-level bill of lading data from major neutral countries, we study how their firms adjusted supply chains in response to Western sanctions on Russia following the 2022 invasion of Ukraine. Firms with headquarters in sanctioning countries reduced sanctioned product exports to Russia, showing multinationals’ geopolitical influence. However, domestic firms in neutral countries increased sanctioned exports, weakening sanctions. Firms exporting more to sanctioning countries complied more, while those sourcing more inputs rerouted sanctioned products to Russia. Sanctioning multinationals expanded exports to both sanctioning and Russia-friendly countries, blending compliance and evasion. Financial sanctions led sanctioning multinationals to reduce imports from Russia in trade finance intensive sectors. To improve sanctions, stronger secondary sanctions and multinational involvement are essential.